HOLLOMAN
AIR FORCE BASE, N.M. ? On the eve of the X Prize Cup, executives from companies
big and small and a mix of senior government officials gathered here to network
and hash out the opportunities and challenges confronting the personal space
flight industry and other such ?new space? ventures.

?We?re here
to have a conversation. No screens. No PowerPoint slides. We?re here to talk as
candidly as we can,? said Peter Diamandis, organizer of the invitation-only X Prize
Foundation Executive Summit, which drew over 120 participants.

The
day-long conversation, moderated by Diamandis and
digital-technology-guru-turned-venture-space-investor Esther Dyson, delved into
the challenges space entrepreneurs face working with the government and large
corporations, raising investment capital, and sorting out insurance, regulatory
and safety considerations.

The big
aerospace companies were well represented at the summit, but only Northrop
Grumman, sponsor of the $2 million Lunar Lander Challenger taking place this
weekend, sent a top executive: Wes Bush, the aerospace and defense giant?s
chief operating officer.

Northrop
Grumman made waves in the venture space community this summer when it took a
majority ownership stake in Scaled Composites, the Mojave, Calif.-based company
that built the $10 million Ansari X Prize-winning SpaceShipOne and is currently
designing a passenger-carrying suborbital craft for Virgin Galactic.

But
Northrop Grumman officials have said it was Scaled?s expertise as builders of
innovative aircraft, not its foothold in the personal space flight business,
that prompted the acquisition.

Bush said
that while Northrop Grumman and the other big prime contractors are interested
in venture space opportunities, they are not about to go on a shopping spree for
space start-ups.

?Most prime
contractors are not interested in majority equity positions in your companies,?
Bush said. ?But might we be interested in a minority equity position with a
technology exchange in terms of a way of helping you succeed? You bet.?

While
Bush?s comments drew guffaws from some participants, Mark Sirangelo, chairman
and chief executive of Poway, Calif.-based SpaceDev, said established players and
start-ups can work together to mutual benefit. SpaceDev, a space technology
firm with orbital aspirations, has built a $30 million business out of a mix of
commercial and government contracts.

There was
no shortage of discussion at the summit about finding financing for
entrepreneurial space ventures.

Christopher
Stott, honorary representative to the space community for the Isle of Man ? a tax-free haven in the British Isles for a growing number of space
companies ? said government agencies are the last place commercial companies
ought to look for customers.

?Governments
are lousy customers,? Stott said. ?They are incredibly risky. They pay late, if
they pay at all. They cancel contracts on you. They have clauses about Congress
changing its mind once a year. Politics intervenes and you investment
disappears.??

Some of the
start-ups in attendance, however, have used government contracts to further
their commercial aims. Case in point: XCOR Aerospace. The Mojave company, a
garage shop effort started several years ago by a computer chip designer with a
taste for rockets but no formal training, has used small government contracts
and grants to build a multi-million dollar propulsion business that is
simultaneously developing a methane-fueled engine for NASA while building a
fleet of pump-fed rocket-powered airplanes for the nascent Rocket Racing
League.

Rich Pournelle,
XCOR?s business development manager, said companies such as Northrop Grumman
and Virgin Galactic have shown a willingness to invest in space start-ups when
their a strategic end game in it for them.

?It seems
to me that if there is going to be institutional investment, it?s going to come
from companies that have some sort of strategic interest in the back end
business that?s created along with this,? Pournelle said.

Burton Lee,
managing director of the Space Angels Network, took advantage of the summit to
announce the launch of an online platform designed to connect individual
accredited investors with space entrepreneurs in need of as little as $50,000
and as much as $5 million to get their businesses off the ground.

But Lee
cautioned that personal space flight is still too risky to reliably attract
funding even from investors who have a personal interest in space.

?We can?t
build an angel network around deals that are represented in this room today.
Its just not possible,? Lee said ?We?re trying to build a broad angel investor
network community in the only way we now how to do it, which is to broaden the
definition of space to include lower risk types of ventures which are closer to
what angel investors invest in today. That includes space and IT, space and
life sciences, and perhaps upcoming areas such as [unmanned aerial vehicles],
aircraft systems, and modernization of the FAA air traffic system, which is
going to require a lot of innovation which the primes can?t handle.?

By
concentrating initially on some of the lower-risk space-related plays, Lee said
he hopes to build a network of angel investors who will eventually warm to some
of the longer-shot endeavors represented at the summit.

?So what we
are doing is trading some of the passion in human space flight for greater
investor confidence in the short run,? Lee said. ?We hope it will pay off with
greater passion and a broader investor community for personal space flight down
the road,? Lee said.

Dyson said
there is a new category of investor between the first-into-the-pool angel-types
and the unblinking venture capitalist crowd: so-called archangels like Microsoft
co-founder Paul Allen, who made killings in other fields and now want to jump
into space for the sheer challenge and excitement of it.

?There?s a
real new generation of people coming out of Microsoft and Google [that] instead
of buying $100 million yachts like [Oracle Corporation founder] Larry Ellison,
some of them are real candidates for investing in this kind of stuff. The
earlier generation bough sports teams. Why not buy Rocket Racing League??

Anousheh Ansari,
a telecom entrepreneur who flew to the international space station in September
2006 aboard a Russian Soyuz flight arranged by Space Adventures, had some
cautionary advice for companies seeking investment from other successful
entrepreneurs: be ready to give up control.

?Entrepreneurs
generally make lousy VCs, especially when it comes down to making a significant
investment, because if you are making a significant investment, you want to run
it,? she said. ?We are very opinionated things, even if we don?t know anything
about it, it doesn?t stop us.?